What is a Minor Demat Account?

The SEBI guidelines require a Demat account for trading securities in the Indian market. While an investor of the age of 18 and above can easily open a Demat account and trade, minors can also open a Demat account, but with a few conditions.

The Company Act, 2013 allows you to open a minor Demat account for your kids to make them financially aware from an early age. Read this blog and learn how to open a Demat account for a minor, and what the benefits and restrictions are that come with it.

A Brief Definition of a Minor Demat Account in India

If you are a parent and an investor who wants to keep your children informed about investments or trades, you can open a dedicated Demat for minors. As parents or legal guardians, you can invest or trade in securities from this account on behalf of your children.

Like a regular Demat account, you can open this account online with your Depository Participant (DP) for your children.

Can a Minor Open a Demat Account?

The Indian Contracts Act of 1872 restricts monitors from participating in financial agreements, such as buying and selling shares. However, due to the Company Act 2013, minors are now allowed to hold shares of public companies in a Demat account.

As a legal guardian or a parent, you can transfer securities as a gift to the minor account or merely as share transfers between family members, etc., or invest in shares and other securities. A minor is allowed to hold such securities but cannot decide or execute the purchase or sale of them.

If you are a parent or a legal guardian, you can make such decisions on behalf of your children. Until your children turn 18, you have complete control of the account and are accountable for managing or closing the account if required.

What is the Process to Open a Minor Demat Account Online?

You can open a Demat account with a with a minor trading account, and the process is simple; and you can do it online. Here is the step-by-step breakdown of the account opening process to follow:

Step 1: Choose a certified DP, like a stockbroker, bank or any other financial institution and ensure that they support minor accounts.

Step 2: Go to the official website of the DP, choose the account type as minor, and duly fill out the form to open the minor Demat account.

Step 3: Upload your and the minor’s Aadhaar Cards, PAN cards, bank details, etc., for the KYC verification, and double-check the documents before submitting them.

Step 4: If you are opening the minor account with your existing DP, link your trading account with the minor’s Demat account. You might also need the declaration form for a minor trading account. If it is a different DP, you must have one trading account with them and link it with the minor account.

Step 5: Complete the verification process through a video KYC or an In-person Verification. After verification, the DP will open the account for the minor.

Documents Needed for Minor Demat Account Opening

Take note of the following documents you need to open a minor Demat account and keep them handy:

• As a parent or a legal guardian, you must provide your PAN card as a document.
• Produce your Aadhaar Card and the minor’s as an identity and address proof.
• Provide a copy of the birth certificate of the minor as proof of age for the minor’s account.
• Your DP will need the bank account details you want to link as a parent or guardian. Provide your banking documents for the process.
• You need to provide your recent passport-sized photographs as a document for the minor Demat account opening.

What are the Benefits of Opening a Minor Demat Account?

You might wonder why you would open a Demat account for your kids if you already have one. Here are the benefits you get upon opening a Demat account for a minor:

• Better Financial Planning

  Opening a minor account for investments can help with financial planning. For example, if you invest in mutual funds for your minor, you can better organise their financial requirements using a minor account and plan for study expenses, weddings, etc.

• Financial Readiness

  A minor account allows your children or minors to have a taste of the securities market from an early age. It makes them financially ready, and they can make better investment and trading decisions once they are adults.

• Opportunity for Passive Growth

  When you invest from a minor Demat account, investments get compounded over time. Returns from such investments are typically higher and help build wealth without active trading.

• Guardian-Only Access

  Only you, as a legal guardian or a parent, can make decisions regarding the minor’s account. As a parent, this allows you to make informed and mature decisions regarding investments.

Restrictions & Rules for Minor Demat Accounts

Before opening a Demat account for minors, you must be aware of some key restrictions that limit investment activities:

• Trade Restrictions

  The minor account does not allow participation in futures and options trading, intraday trading, currency trading or trading in the speculative stock market.

• No Joint Account facility

  You cannot link or convert a minor Demat account to a regular Demat account, as a minor is restricted from having the joint account facility.

• Change of Parent/Guardian

  In case of the demise of guardians or parents, a minor’s account becomes frozen immediately. The court can only decide the next guardian after a complete KYC verification.

• When Minors Become Adults

  When your children or a minor with a minor account turns 18, the account becomes inactive. The minor, upon becoming an adult, needs to open a fresh Demat account and transfer the stored securities from the minor account to the new account.

Conclusion

You can open a minor Demat account for your children or minors as a parent or a legal guardian. The minor account makes a minor knowledgeable about the Indian security market from an early age, but the guardian or parents can make investments using this account.

FAQ’s

1. Can a minor trade in stocks using a minor Demat Account?

The minor account allows people aged below 18 to hold shares and other securities in the account. Parents or guardians can only make investment decisions on the minor’s behalf.

2. What happens to a minor Demat account at 18?

When a minor turns 18, the minor’s account becomes inactive. The account holder now must open a new Demat account and transfer the securities held in the minor account to the new one.

3. Can a minor invest in mutual funds?

Yes, minor Demats allow minors to invest in mutual funds, but it needs to be done under the guardian’s or parent’s supervision.

4. What is the age limit for opening a minor Demat account?

The minor account comes with the no-age-barrier facility, which allows minors of any age to have a Demat account.